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James Daloisio
James Daloisio,
Category: Tax
Satisfied Customers: 4944
Experience:  Deputy District Attorney at Santa Barbara County District Attorney
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LOCAL EARNED INCOME - WHAT INCOME REPORTED ON SCHEDULES E,

Customer Question

LOCAL EARNED INCOME - WHAT INCOME REPORTED ON SCHEDULES E, F, K-1 ARE CONSIDERED TAXABLE
JA: Have you talked to a tax professional about this?
Customer: IMAM A TAX PREPARER. I CANNOT FIND ANY RULES
JA: Anything else you want the Accountant to know before I connect you?
Customer: MOST CONCERNRD ABOUT SCHEDULE E AND K1
Submitted: 5 days ago.
Category: Tax
Expert:  James Daloisio replied 5 days ago.

Hi, my name is Jim, and welcome to Just Answer.

Schedule E: Page 1 is for real estate rental activities, and royalties. Taxable income is on line 26.

Schedule E page 2 is for partnership and S corporation income reported on Schedule K-1, Estates and Trusts, and REMICS. The taxable income for each category is reported on lines 32, 37, 39, and 40. To determine what's taxable on your K-1, the general rule is that income reported on lines 1-14 of k1/1065, and 1-10 on K1/1120S, reflect taxable income.

It's not the income that is confusing. It's the losses. You have to distinguish between passive losses and non-passive losses so you know how much you can deduct and against what kind of income it can be deducted.

The way to do that is with the worksheets included with Form 8582, "Passive Activity Loss Limitations." There are seven worksheets on pages 2 and 3 of form 8582.

To comprehend the taxability of figures on your K-1's you have to understand "basis." Very generally, a person's ownership interest in a partnership or S corporation is the value of their share. or shares. "Basis." Both S corp shareholders and partnership partners have to pay self employment tax on a certain portion of their earnings; but residual profits can be distributed to them tax free, as long as the distributions do not exceed their share basis. If a distribution exceeds a shareholder's basis, the excess is reported as a capital gain on schedule D via form 8949.

Partnership K1's will show distributions on line 19; S corp. K1's will show them on line 16.

Here are the instructions from the IRS:

https://www.irs.gov/pub/irs-pdf/i1040se.pdf
https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf

https://www.irs.gov/pub/irs-pdf/i1041sk1.pdf

.

Let me know if this has answered your question. Please don't forget to rate this answer by clicking on those green stars at the top of your screen. Otherwise the site doesn't give me credit for answering. You may always return with follow up questions if you need more information. Thank you.

 

Customer: replied 5 days ago.
You have answered the question for IRS or Pennsylvania
I am concerned about Pennsylvania local earned income tax
Customer: replied 5 days ago.
Will not accept
Please remove me from the just answer service
Customer: replied 5 days ago.
Remove my account from just answer
Expert:  James Daloisio replied 5 days ago.

1) Telephone call solicitations are generated automatically by this website. They are not coming from me, and unfortunately I have no control over them. You are, obviously, free to ignore them.

2) NOWHERE in your post is the word "Pennsylvania" mentioned. I'm a lawyer, not a mind reader.

3) The reason that I focused on the distinction between passive and non-passive earnings is that many jurisdictions, like Pennsylvania, do not impose that "local" tax on passive earnings. They only impose it on "earned," or "non-passive," income. Once you distinguish those two types of income in the federal return, you have the amounts that are taxable to your state jurisdictions local tax.

4) It does you no good to tell me to remove your account. I am a lawyer and I log in here and answer questions for people. I try to HELP. I have nothing to do with the operation of the website. So you should contact customer service where you originally signed up. I'm sure they will take good care of you.

 

Customer: replied 5 days ago.
Not willing to pay an additional fee for an answer
Expert:  James Daloisio replied 5 days ago.

Like I said, I have nothing to do with management, billing, payments, or anything. I answered the question. Whether you pay for it or not is not my concern. I hope the information was helpful.